In federal contracting, the laws and regulations surrounding data rights and intellectual property (IP) rights can instill fear in many companies, especially small businesses. A misstep could have you assigning unlimited rights or even ownership of your IP to the federal government. For a broader explanation of some of the challenges government contractors face, please check out our earlier blogs here and here. Generally, to ensure protection of its rights vis-à-vis the federal government, a contractor must include an applicable legend from the Federal Acquisition Regulation (FAR) / Defense Federal Acquisition Regulation Supplement (DFARS) on every delivered item. Legends vary, but some examples can be seen at DFARS 252.227-7013(f). If you fail to use the exact legend then the government will likely have unlimited rights, which includes the right to provide your IP to third parties. The Federal Circuit recently clarified, however, that the requirement to include the exact legend in the FAR / DFARS does not apply if you are trying to restrict the rights of third parties, but not the federal government directly. This could be a win for government contractors seeking to protect their company value and limit third-party access to their IP, even when the federal government takes unlimited rights, but the litigation in this matter is not yet complete.
The Federal Circuit case, The Boeing Company vs. Secretary of the Air Force,[1] dealt with a situation where Boeing attempted to use this non-conforming legend on its IP to restrict use by third parties:
Originally the Air Force rejected the legend as non-conforming because it did not match the DFARS legend exactly. This is the most common reaction that federal government personnel have when reviewing data rights issues. Indeed, it seems many agencies have a policy of securing maximum data rights, even where an allowance for a modification of the legend would be appropriate. These policies have severely harmed the value of many small businesses.
In Boeing, however, the court ruled that the legend was allowable, even though it did not conform to FAR / DFARS requirements. This is because the legend was not intended to directly restrict the federal government, but instead, to restrict use only by third parties. Thus, contractors may now put their own legends on IP that restrict the rights of third parties and that do not conform to FAR / DFARS legends, and the federal government cannot reject those legends or use non-conformance to try and claim unrestricted rights over the whole of a set of IP.
This case can be very helpful to contractors of all sizes. While you cannot place non-conforming legends on your IP to restrict the federal government, you should be able to use your own legends to restrict third parties, even when the government has unlimited rights under the contract.
The full scope of this decision will have to be fleshed out in future litigation. What is not entirely clear from the case is how these third-party legends impact the federal government’s right to provide the IP to third parties or to disclose the IP in requests for proposals or other public ways when it has unlimited rights. While that is generally understood to be a right of the federal government when it takes unlimited rights in IP, this case calls into question the full scope of that authority.
It also remains to be seen whether a contractor can now require the government to seek its pre-approval when the government has the right to disclose IP to third parties in the context of unlimited rights and whether a contractor can require the federal government to provide the contractor notice before disclosure. I believe you could require the federal government to give notice, but I do not think you can go so far as requiring pre-approval. That would be seen as limiting the federal government’s rights, and in the context of unlimited rights, that is in a way contrary to the FAR / DFARS.
Boeing has been remanded back to the Armed Services Board of Contract Appeals to determine these questions of pre-approval and notice. We shall see how the board rules and the result of the appeals that will no doubt follow.
If you have questions about better defending your data rights and IP rights, please contact Cy Alba, the author of this blog, or a member of PilieroMazza’s Intellectual Property & Technology Rights, Government Contracts, or Cybersecurity & Data Privacy groups.
[1] The Boeing Company vs. Secretary of the Air Force, Fed. Cir. 2019-2147 (December 21, 2020)
